#1 is my must read today. I'm curious. Maybe there's a way through the morass. Money printing to build infrastructure directly?

1. Deficit owls - The Washington Post does a nice job here of explaining Modern Monetary Theory (MMT), which says sometimes it makes sense to run big budget deficits to get depressed economies going again and that money printing is unlikely to create inflation as long as economies have spare capacity.

Here's the thinking.

The MMT train is gathering some momentum.

It essentially says that quantitative easings (QE) where central banks buy bonds from banks doesn't work because money simply gets redeposited in bank accounts rather than spent. This is called the liquidity trap.

MMT says the best thing for any country to do that has its own currency is to print money and have the government spend the money directly on goods and services to get things going again. It sounds a lot like what New Zealand did in 1936 when the Reserve Bank printed money to the Michael Joseph Savage-led Labour government to build state houses.

In contrast to “deficit hawks” who want spending cuts and revenue increases now in order to temper the deficit, and “deficit doves” who want to hold off on austerity measures until the economy has recovered, Galbraith is a deficit owl. Owls certainly don’t think we need to balance the budget soon. Indeed, they don’t concede we need to balance it at all. Owls see government spending that leads to deficits as integral to economic growth, even in good times.

The term isn’t Galbraith’s. It was coined by Stephanie Kelton, a professor at the University of Missouri at Kansas City, who with Galbraith is part of a small group of economists who have concluded that everyone — members of Congress, think tank denizens, the entire mainstream of the economics profession — has misunderstood how the government interacts with the economy. If their theory — dubbed “Modern Monetary Theory” or MMT — is right, then everything we thought we knew about the budget, taxes and the Federal Reserve is wrong.

“Modern Monetary Theory” was coined by Bill Mitchell, an Australian economist and prominent proponent, but its roots are much older. The term is a reference to John Maynard Keynes, the founder of modern macroeconomics. In “A Treatise on Money,” Keynes asserted that “all modern States” have had the ability to decide what is money and what is not for at least 4,000 years.

This claim, that money is a “creature of the state,” is central to the theory. In a “fiat money” system like the one in place in the United States, all money is ultimately created by the government, which prints it and puts it into circulation. Consequently, the thinking goes, the government can never run out of money. It can always make more.

This doesn’t mean that taxes are unnecessary. Taxes, in fact, are key to making the whole system work. The need to pay taxes compels people to use the currency printed by the government. Taxes are also sometimes necessary to prevent the economy from overheating. If consumer demand outpaces the supply of available goods, prices will jump, resulting in inflation (where prices rise even as buying power falls). In this case, taxes can tamp down spending and keep prices low.

But if the theory is correct, there is no reason the amount of money the government takes in needs to match up with the amount it spends. Indeed, its followers call for massive tax cuts and deficit spending during recessions.

"The market is being very rational in saying it's a step but it's not a big enough step yet," El-Erian said of the Greek debt deal announced earlier in the week. "Fundamentally, Greece is going to have to find a way to restore growth and restore competitiveness. If it doesn't do that, private capital isn't going to come in and if private capital doesn't come in you don't get the oxygen that an economy needs."

"So far it's been let's kick the can down the road because nobody wants to make a major decision."

On a global level, El-Erian said the contagion risks from Greek as well as the disruptions to energy supplies from Iran and Syria pose even more economic risk.

3. 'Triggering the swaps' - After the Greek debt haircut announced this week, many are wondering why the Credit Default Swaps (CDS) sold on the Greek bonds are not being triggered, given it appears Greece defaulted.

Many people are worried a triggering of these swaps could unleash some pain in financial markets, given they've been written by all sorts of people off regulated exchanges. There's about US$20 billion worth of Greek CDSes outstanding and net positions of around US$3.2 billion, so it doesn't sound too disastrous. But the problem is the precedent a triggering (or a non-triggering) would set for other CDS markets such as Italy and Spain, where the net positions run into the tens of billions of dollars.

After all, why would anyone buy a CDS when a government can impose a 70% haircut and not trigger the CDS? What's the point of a CDS if it can't protect you from that much value destruction?

Here's Dealbook looking at why they may yet be triggered despite the legal gymnastics of the European negotiators and their banks.

Greece may insert something called a collective action clause into bonds issued under Greek law. If the clause is inserted and then invoked, all bondholders will be forced to take a haircut, making the exchange involuntary. That would set off the default swaps. The official decision on whether a default swap has been activated is made by the International Swaps and Derivatives Association, an industry body.

“I have very little doubt that they will be triggered,” said Darrell Duffie, professor of finance at Stanford.

The Greek government said Tuesday that it was sending a bill to Parliament that, if passed, would insert the clause into bonds issued under Greek law, which make up more than 90 percent of the country’s bonds. (Other Greek bonds were issued under English law.) Some chance remains, however, that the exchange could be done voluntarily, avoiding a default swap event. That outcome would most likely prompt a torrent of criticism that the swaps did not cover holders against losses, as they were intended to.

“The whole nature of the C.D.S. contract would be called into question,” said Richard Portes, professor of economics at the London Business School.

Dr Ali Samsam Bahktiari, a former official at the National Iranian Oil Company, said in 2006 - just a year before his death - that all the countries in the Middle East vastly overestimated or overstated their reserves. Complicating matters, demand for oil is forecast to increase dramatically in coming decades.

Dr Fatih Birol, Chief Economist of the International Energy Agency, told The Independent on August 3, 2009:

"Even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production, and six Saudi Arabias if it is to keep up with the expected increase in demand between now and 2030. It's a big challenge in terms of the geology, in terms of the investment and in terms of the geopolitics "

Furthermore, Whipple believes OPEC quotas are no longer relevant.

"Everybody just produces as much oil as they can or [that] is prudent to extract without damaging their oil fields," he said. "The Saudi and Iranian fields are getting really old and should start to decline in the next decade. The Saudis just announced that they will not be increasing their capacity, except for natural gas. A lot of people are starting to lump in their natural gas production along with their conventional oil. It is called ‘barrels of oil equivalent'. Exxon has been doing this for years, as they pretend their output is increasing."

Leith highlights the difference between new lending (which isn't profitable) and previous lending, which may still be profitable. HT James via email.

When mortgage credit growth was running at an average annual rate of around 15% in the early to mid 2000s, the banks were able to derive strong profits from skinnier margins, purely because the volume of lending was so high. However, with mortgage credit growth now running at only around 5.5% annually, and funding costs remaining elevated, the banks’ are finding it increasingly difficult to grow their profits, resulting in the recent drive for cost reductions, including staff cuts.

In my view, the banks were more than justified in their decision to raise mortgage rates independent of the RBA. Without doing so, the banks would have had little economic incentive to continue to write new loans, which could ultimately have led to credit being withheld from prospective borrowers.

6. An Australian Fannie Mae? - The 'out-of-cycle' rate hikes in Australia have got the real estate industrial complex all hot and bothered about the withdrawal of their low interest rate drug. Now it's calling for the Australian government to guarantee securitised mortgage bonds, Fannie Mae style, so new competitors can have a go at the big four banks.

In recent weeks the dynamic duo of Mark Bouris and Christopher Joye of Yellow Brick Road have argued hither and thither for a dramatic shift in the rules that govern the Australian financial system. They have recently appeared in the ABC, AFR and The Australian (as well as no doubt being the secret “bankers” referred to yesterday by Robert Gottliebsen at BS) to propose that the Australian Budget should be deployed as a guarantor for pools of mortgages aggregated from all banks and non-bank lenders. They propose this as a solution to the competition woes afflicting the current system, which guarantees individual banks, privileging the large over the small.

Hendry: When you have bubbles and you tighten, bad things happen. China's stock and property markets are weak, a side-effect of quantitative easing. We may now have the pricking of the Chinese bubble. A year or two down the line, it could have enormous repercussions for the global economy.

Q: How does one play it?

Hendry: The world is very fearful of hyperinflation. Pension schemes have a preponderance of real assets, from forestry to gold to TIPS [Treasury inflation-protected securities], because they are very fearful. The road to hyperinflation is via hyperdeflation. That is why it's proving so difficult for hedge funds to make money. How does the rational mind that anticipates hyperinflation own 10-year government Treasuries yielding less than 2%? It can't. That's why people are struggling.

To lay the seeds of hyperinflation, you need really, really bad things to happen. I thought the U.S. housing market having a massive crash would be hyperdeflationary. But then my Chinese friends pumped $1 trillion of credit into their $5 trillion economy, and created a global recovery, which has just come to an end. I'm speculating that hyperdeflation happens before hyperinflation.

I'm speculating that hyperdeflation happens before hyperinflation. What's the worst that could happen? But the sum of all my fears would be China having a real hard landing of minus 5% or minus 10% GDP growth. If we had that—and Europe—the Fed would be printing $20 trillion, and I would have gold at $5,000. You can have a modest amount of gold, but you can't have all your assets in real assets, in case we get that hyperdeflation event.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

Isn't there some private coorporation that prints the money and puts it into circulation, creating money out of thin air to buy Treasuries, MBS and other FWMD's? Don't the banks play a major role in the creation of money, I'm sure they created 88% of it. All the govt can do is borrow and tax.

He was so wrong skudiv..not even funny...1913 the FED was handed the authority and control over the currency of the USA....the govt only appoints Bernanke as a face saving gesture...the Fed does what the banks agree to do. THis is why the banks have escaped criminal investigation since 1913. They own the us economy, just as the aussie banks own this one.
In NZ the RBNZ buy the bank notes printed in aus for them but has almost no control over credit issued by the banks other than the ocr and the reserve ratio. The system stinks.
The massive move toward this grossly stupid situation started long ago with the mortgage laws and the dollar down and a dollar month laws...from then on the banks had one thing in sight....owning the productive sector of the country. They won. That's why Key and Co dance to their tune.
The future from here on in, is credit every which way you look. A drop in the demand for the drug brings a prompt banking advertising blitz to boost it back up. That is why Kiwibank and the others are playing at dropping the rate for brief periods of time. It is all a big game that the silly peasants cannot win.

Iain we have been down this road many times....you have to forget all about the liars in the Parliament...you will never get their support...they have been bought...with credit...
Put your effort into encouraging peasants to head to the credit unions..not perfect I know but a jolly sight less dirty....and try hard to discourage people from taking on debt of any kind...that is the only way you will bring the scam to an end.

Yep and it's the greatest criminal act in the world...never see a banker arrested or doing time...never see them collecting peasant pay....mansions everywhere and we know what they drive...kids in the best private schools....crikey many of them never have to actually do any 'work'.
They are protected by the politicians of all stinks and the establishment falls over itself handing out the awards to go with the Gin and Tonics.
Sadly the nz education system devotes not one minute to helping kids learn all about the great rort, indeed the system busts a gut to feed the kids into the mortgage mangle.

I recall being concerned about the deposit that Kitchen Studio wanted when we recently dealt with them. It was explained to me that they are a franchise model - and the franchisor guarantees all the deposits taken by a francisee in the event the franchisee goes broke. I got them to confirm this via email before making the deposit payment.

In the UK you have or did have a 30day guarantee via VISA so if something happened it was VISA's loss and not yours....however in NZ it seems VISA isnt so helpful/forthcoming....I was quite shocked how much you are left on your own compared tot he UK...no service at all unlke the UK.
regards

Oh, I dunno about (#1). If restricted to conditions of high unemployment and high exchange rate, and particularly with NZ's lack of new housing build it seems like an attractive option. Seems like a better deal than selling more govt. debt or selling assets, for example.
It doesn't have to be used to extremes as in Zimbabwe. Better to view it as a tool to use under the right conditions.

8# I suspect you are right.....as a general thing, however if they were trading while insolvent then it is fraud....in a legal sense?, however legal and VISA'a defination of it differ..........
So in effect you are no better off using your CC than in paying cash....
regards

Funny assessment here > "The entire economy relies on the suspension of disbelief. So does a fairy story, or an animated cartoon. This means that no matter how soberly the financial experts dress, no matter how dry their language, the economy they worship can only ever be as plausible as an episode of SpongeBob SquarePants. It's certainly nowhere near as well thought-out and executed". http://www.guardian.co.uk/commentisfree/2012/feb/12/banknotes-not-worth-their-paper

Kitchen House is just one of many small firms being slaughtered by the gst axe...well done Bill English et al....superb bit of dogma without the thinking.
Who now will put a deposit down with a small LTD liability company....and risk it going poof in the night...? Consequence Bill...demand for services from small business everywhere will drop...didn't think did you?

#4: Peak Oil
Its a funny thing, isn't it, we really don't know whether oil is running out or not.
BusinessWeek has an article the other week, it said that people have been predicting peak oil for generations, but the ability to find and exploit new sources of oil has always kept ahead of oil consumption. Also that currently provable recoverable reserves of oil are enough for decades of usage, even not allowing for shale oilhttp://mobile.businessweek.com/magazine/everything-you-know-about-peak-oil-is-wrong-01262012.html
And BusinessWeek isn't some far right libertarian denialist journal - they research well, and this present article does make note of climate change and pollution.
Personally, in the climate of uncertainty I prefer to personally act as though peak oil is indeed coming; it won't have done me any harm if that was wrong.
Cheers

We've already hit 'peak oil' in that we're currently at 'peak refining capasity'.
New sources of oil won't increase supply unless someone spends a billion or two building new refineries.
And that's unlikely - so as demand grows the inelastic supply side will see prices rise continually.

meanwhile heres another good bit of progress with our infrastructure - go Steve Joyce , go NZ !
Construction is underway in Panmure on one of Auckland's biggest transport projects.
It's the first section of the $1.5 billion Auckland Manukau Eastern Transport Initiative.
The new road will cut 10 minutes off the trip between Glen Innes and Mt Wellington when it opens in 2014.
National Road Carriers executive director David Aitken says it will replace the current road which carries high volumes of heavy freight vehicles.
He says at the moment, it's a congestion point which can add 45 minutes to two hours to a trip.
David Aitken says it's just the first step, but it's an important one, because the project is officially underway.

Pure madness !
Another stupid, megalomaniac decision by Minister Joyce – continuously failing to address the real issues in 2012 +.
In the current worldwide economic climate - 1.5 billion would goNZ a long way to train and prepare our young, unemployed “NZ intellectual capital” in various, new and helpful jobs for NZ’s economy.

Excellent prospect for our youngsters.
Educate/ train them up to a high standard – and make them available for other countries workforce – what a great economic strategy !

Finding a job is one of the biggest worries for today's tertiary students - so much so that many are planning to leave the country when they finish studying.
These are the findings from an online Colmar Brunton survey of more than 1000 students conducted on behalf of Student Job Search.

What is hard to understand about "Oil is finite"? sems many dont...
and peak isnt about running out....its max flow possible, yet another point truppeted by the ignorant.....it wont run out for 50 years....whether our economy/society will be in a good enough shape to get whats left and use in in 20 years is questionable though.......
and no, oil finds peaked in the 1960s, we now use 3+ barrels for every 1 we find....
Indeed the rest of that piece is laughable...it isnt journalism....is right wing, blinkered, and yes right wing voodoo.....praying at the alter for deliverance....its classic denial, its either "price will mean we get more", or "technology will save us" or "its not a problem anyway".....Richard Branson gets it.....
This piece hasnt been researched well...its gob smackingly ignorant.....
....In the 1950s an oil geologist named M. K. Hubbard predicted US peak oil as 1970....he was right with some months. He went on the predict (in the 1970s?) world peak [crude] oil as about 2000, it seems it peaked in 2005 or 6....not to bad for accuracy 30 years prior (though later geologists say 2010~2012 is possible) done by hand or with crude computers with lots of unkowns...
The point is he wasnt 30 or 50 or 100 years off....

Well, like I say, I don't see BusinessWeek as all that "right-wing blinkered". & the article does make you wonder, apocalyptic prophesies often don't go quite as predicted, or not in the timeframe suggested anyway.
I mean, maybe there will be some technological miracle, as with fracking & the natural gas - which really has changed the outlook for that industry.
However, where I think we can be pretty certain that the BusinessWeek article is misleading: we are increasingly dependant on oil that comes from places that are politically dicey / challenging to transport the oil from / difficult to access (eg miles out to sea) / bloody expensive or inefficient to refine / or environmentally fraught
So to my mind, the cost of oil is bound to keep going up, either gradually or in spikes.
We are insane as a country to ignore this, since we run a constant deficit as a country. Building new roads while implicitly favouring the use of colossal SUVs etc on them can only add to our deficit, & of course leave us more vulnerable to energy shocks
Thanks for all the comments, they make good sense.

In many European countries, Rego (or its equivalent) is higher for gas-guzzling vehicles that have more impact on the road & environment than little fuel-sippers. So you don't have the smaller shopping baskets subsidising the SUVs as you do here.
Apart from having larger vehicles paying for their larger impact (eg far more destructive when they are in an accident), it gives a message to road-users that maybe it's a good idea to use the smaller cars if at all possible
Not at all realistic for a peasant mind-set such as seen in Godzone, of course.
Cheers

of course.....but thats the job of govn....to lead and set direction....with policy....to prtect the well being of the ppl and the country.
So make EVs tax free and <1000cc cars say 20% of the present rate..<1500cc cars 50% current rate >2litre 2 x the rate, 3litre plus x 6 the rate etc....bias that with weight....to encourage lighter and better designs...etc etc...
Otherwise when the price shocks come no one will be ready, or few....thats the choice....and National at least is doing the latter....but then they dont lead...
regards

Well as always when you dont know all the detail you make the best determination based on what you do know. Its risk analysis and risk mitigation.....of you could just pray....I'll go with the former...many seem to be doing the latter.
Fracking is a dog...its dubious technology thats being painted as a saviour by those selling it.....ie its questionable if it delivers on cost even if you ignore the enviromental damage its causing....some select great wells are offset by many wells producing very poor;ly and all are further offset by rapid decline....I suspect its pretty fraudalent.
The cost of oil will be spikey, its dependant on demand..so in a recession price will fall, as we recover demand will surge to the price will rocket....very saw tooth/volitile.
NZ ignoring this, yes but the onflow of effects as well...and we are relaitively poor compared to say the USA...so if coal surges in price due to overseas demand, well we have to buy it atthat price.....milk is a classic example of how we are being screwed...
regards

And your communication background, expertise and experience to make such an assertion is? Or is this just another one of your many expert opinions, opinions that you share with the other Green fruit-loops around here whose 'expert' is based on – well absolutely nothing?

You see that's the problem with you guys. Your rhetoric is not backed up by suitable qualifications and expertise that you yourselves hold, and that just leaves a yawning credibility gap with whatever it is you say. Pursed lipped opinions are not expert ones. And shouting louder and abusing people like me doesn't change that.

Who said we are abusing you? oh wait you didnt write this? OMG, LOL if so....
This isnt about communications, its about the content of it. OK, its well written hogwash, but its still hogwash.
I expect that a journalist report honestly, factually and truthfully...the content is absolute rubbish and it wouldnt take 5mins googling to see that this is such, sure its written nicely.....
Abusing? yet this is all you do....you try and tear ppl down constantly, yet fail because your point of view is simply not based on anything concrete.....
regards

DavidB - Journalism should be preceded by the words 'good' and 'investigative'. At the end of the day, it's about trying to ascertain the truth.

One of the saddest sights, is of those who perhaps started out along those lines, but have descended to the level of your attempt to pin leaky homes to Green policies. That's clearly not the truth, and the opposite of truth is?

I wonder how such folk can live with their consciences, but I guess it presupposes that they are so equipped.

But PDK .. I am sure that you would argue that leaky homes was a consequence of industry (?) seeking to reduce the cost of building by improving the cost of conversion of resources to end product .. with less chemical pollution .. is that not a green policy aspiration? (anyway thats the link) .. it's good .. and also green efforts are not unblemished .. doesn't always have clean hands .. read and study the "ngataringa bay" fiasco .. well intentioned but very expensive and damaging .. a little care

Lets look at his source,
"Daniel Yergin has excellent connections with the oil industry, and is the Chairman of a private energy consulting firm called Cambridge Energy Research Associates"
CERA has been widely critised by just about everyone and their numbers dubious for at least a decade......so a highly biased source.
regards

MFAT to be put on a diet....
"An axe hangs over 305 jobs - including 63 policy positions - at the Ministry of Foreign Affairs and Trade.
The announcement was made by Mfat chief executive John Allen at a press conference today, who stressed that the reforms were a proposal and "not a done deal", and staff had a month to provide feedback"
Don't you worry John, your huge salary is safe.
Better pass the word to the staff overseas...get their tax free van loads of 'personal goods' shipped back on the taxpayer, like quick....

Imagine the new level of election bribes/vote buying, we could have with MMT. Once the printing hits the handle of the hockey stick it's on like donkey kong. Forget about the diminishing returns on debt. MMT is a goldbugs wet dream. Contain inflation? Forget about it, they may understand numbers and models, but have totally miscalculated the stupidity of politicians and voters.

I havn't looked at steady states, to date every monetary philosophy I have seen has a baisic predicament of unsustainability. "what cannot be sustained wont". There are so many things that make them unsustainable, the first is interest bearing debt, then there is the corruption of democracy, then there is monopoly power, or the wasteful use of resources maximising short term profits or creating repeat business through forced obslescence, the list is frigging massive I could go on all day. Unless we can go back to a time before money, or evolve into a post money economy, anyone who is a "have not" is going to be exploited through events beyond their control that they were born into. I'm not thrilled to be a part of it, the only way I can see out of it, is to create financial security for me and mine, then I will at least have the mobility and freedom to take further action.

Education about money is the start, and it's no surprise there is no structured education for the masses on it. I understand, some ways are better then others, but at the end of the day the world is run for the rich, by the rich, because they are the owners. Ownership, control and power is converging, there is no upward mobility. I remember that graphic illustrating how about 50 companies own 60% of the worlds business, that percentage is not shrinking.

CDS are a bet, and not designed to cover holders, if that was the case whhy can non holders buy them? Like bonds not all CDS are created equal, the "dumb money" buys ISDA contract CDS, the "smart money" buys CDS written in their own contracts. I have no doubt that at least some non ISDA CDS are out there and will be triggered. Greece hasn't defaulted yet, every bond has been paid out in full upon expiry so far.
Wait and see what happens, CDS will be triggered and CB's will use the only tool they have to fix the mess. At a guess most CDS have been covered in some way shape or form. The ISDA nonsense was just to buy time, allowing those who wrote naked time to cover. Same with all the FinMin, Troika, Euro meetings, were just delaying tactics.

Bernard, I've been a serious MMT follower for coming up two years now, and have to thank you for giving it a little time. At any rate, if you want to learn more about it, it's better not to read a journalist's translation describing it. This is the best place to read about it:

It seems that the MMT position on QE has been misrepresented judging by your comments. MMT says that QE does not change the net financial assets balance of the non government sector. That is, when QE occurs, the non government sector exchanges a bond security worth $x for a cash amount of $x, and hence is no better off is terms of dollars. The non government sector has merely exchanged a longer term security for a liquid security of equal value.

As you might know, the QE transaction will cause a greater amount of reserves in the banking system. However, since banks don't lend reserves - that is, bank lending is not constrained by reserve balances - this won't enable any additional lending. Hence due to the fact that:

a) the non government net financial assets balance remains unchanged
b) greater bank reserves doesn't enable greater bank lending
c) given bonds are mostly owned by pension funds, banks, insurance compan
ies and so on, spending is not going to increase as bonds are sold to the central bank.

quantitative easing is not inflationary.

It can, as we saw in the USA, lead to speculation in equity/commodity markets as investors alter their portfolios, as one would expect if the central bank is purchasing large quantities of a key asset class.

Oh great news for those living on retirement savings returns...govt drives down the returns to hide their own stupidity going back decades and bails out their mates in the banks who go on sucking down massive salaries and bonuses...while the OAPs have to live on zero dollars...Printing is thieving. It is that simple.
The other consequence none of these fatheads bother to consider is the impact on the thought process in the brains of the young...forget about encouraging them to save...they are learning fast that they are better to splurge on the stuff they need...discard the rubbish they don't....and develop strategies to avoid the tax theft all the way through life.

Do you have any suggestions how the young can avoid this debt trap, and manage to make foward progress? It is getting so expensive just to exist, let alone make any financial progress!, even without any splurging.

Optimist. Yes. First, you have to define 'forward'. The accumulating of 'wealth' as 1's and 0's in a computer, somewhere? The ownershp of a house? 'Saving for 'retirement'?

As important as what you 'save', is what you don't spend. Don't use a car, for starters. The young won't have the opportunities that the BB generation had, it's hard to see how 7 billion people could where there were once 2 billion. Rather than seeing it in terms of financial progress, why not see it in terms of what you want in real terms?
If you're after property, get a group together and buy a farm or a bigger building between you. Make sure you've got a document in place.... Always cheaper in acres/space per head. I'd go for the farm, personally, as you get space and food as well.

Try and ascertain what will be in need in the future - and get skills in that area. Judging by some posters here, spinmeistering may be lucrative :)

It was always going to get 'more expensive' from about now, happens when there are too many folk and too few resources. You are well ahead of those who are seriously leveraged (landlords and Dairy-farm owners come to mind) at this point. Think of it as all those folk crowding to the stern of the Titanic near the end - understandable but pointless - and think through a counter-cyclical strategy.

You had me, up to the point where you lumped dairy farmers in the same boat as landlords. Farmers have a market of 7 Billion people, international commodities. It is food, and people always want to eat.

There is bugger all difference in the carbon miles of NZ food in the UK, and food grown in the UK. Shipping uses bugger all energy compared to the cost of production in many countries that are not NZ.

Skudiv - sorry I lost you. Those billions simply have to earn real money, to be able to pay. That can't be gotten from 'investing', at the end of the day, it has to be gotten by producing something real, that has a real demand. That demand, in turn, has to be paying in real terms.

We've relied on exponentially-biggering everything to underwrite the ability to pay, and to inflate-away the owed. On the way back down, the reverse applies. The ability to pay reduces, and the debt must become relatively harder to repay. I wouldn't be in dairy now, it's at it's peak in relative earning terms, and it's at the stage of offering mom-and-pop shares to mop up those who can't get in straight - a sure sign that it's time to get out.

Food miles depend on which mode of transport. Almost nothing flown stacks up, almost everything shipped is hardly worth worrying about.

I thought it was worth mentioning the difference between international commdities specifically food and rental property.
Do you recall when USSR went broke, and paid for a whole lot of dairy products with Lada's? I was a kid back then but I still remember it because my auntie had a Lada. Amazing, they paid with real things, for real things.

Statistically speaking you are still more likely to be involved in a road accident than to be attacked in public. No, you probably don't think but you certainly don't like public transport for some reason and latch onto silly arguments because of that. There are often other people around in public who might potentially help you out if somebody is a threat. I suppose that idea is a bit idealistic and utopian though isn't it, especially if everybody is just out for themselves all the time. Bastards! Why does everybody else have to be such bastards!

There are none....The older are locked into a growth mantra so will take on private and govn debt on your behalf to get them over what they think is a short term slump....it isnt.
This means in effect there will be huge hardship in the future especially for the young...
Energy underwrites "financial progress" if its real wealth anyway, since there will be less energy looking forward there will be less real wealth.....
Think energy as being the base currency, money as a proxy or IOU for future work/energy.....
If you can understand and accept that you will be ahead of a lot of other ppl.
or simply, rule 1 avoid any debt....
regards

It would be quite nice if somebody actually answered your question, optimist, wouldn't it? Sadly there doesn't seem to be very many people around here who comment who have any business acumen and/or money making ability, although I have no doubt that if you asked for advice on how to grow organic turnips you'd get many lengthy replies.
My advice would be to get your young person to start investing.

If he was successful at investing, he wouldn't be needing to be paid to be here. Reminds me of those books you can buy which tell you to win on the horses/in real estate/investing. If it worked, the folk wouldn't be writing them, the TAB would be out of bizzo, and there would be no margin left anywhere.

Here is a task for you Optimist.
How old are you?
Do you know any grey-hairs? Do you know any tribal-elders? Do you know any BBs?
Seek their wisdom.
Talk to them. Interview them. Quiz them. Ask them how they coped.
Then come back and give us your interpretation of their answers and your assessment of the answers given above.

The suggestions were helpful.
Grey haired elders advice was: get skilled in a job that has big demand for the skills and make a steady income from it to pay the daily bills.
Also save some money, buy as much coastal land with a sea veiw (anywhere) as can be afforded when going cheap during an economic down turn. Hold on to it for and pay for it over the next 15-25 yrs and sell it off again during the next property boom.
While waiting for the property boom have old car, drink cheap wine, live in small house.
When prime coastal property sold in next boom time which always eventually come around again, make massive fortune and give lots of the money to rest of family so they can buy houses and be nice to you and look after you when you are old, and also have plenty of money left over for self also. This is a true story from a 75 yr old.
Or, make something original which lots of people want and need, and sell it, but getting and keeping patents on original things very diffcult these days.

One thing a very wealthy man said to me once was never have all your eggs in the same basket, instead put them into three. That way, if one thing doesn't work out for you then the other two will still keep you ahead.

Commonsense advice that we've all heard before, but it is true.

(Just remember, that $150k divided 3 ways and invested into 3 different finance companies is not putting your eggs into 3 different baskets. They are still all in the same basket, finance companies!)

Iain... '...If public money were issued and allocated...the purchasing power of everyone would be increased...' I disagree.... the opposite will eventually happen.
1. Exactly who do you think will be doing the issuing and allocating of this money? Polititians? - those people whose jobs are dependant on winning votes? Really? I would suggest the same inflation problems would occur... infact I would even make the case it would be worse to give politians this power than it would bankers... afterall politians have a whole lot more people to please (and buy off) than do the the bankers... please think about this.... it's like if you gave a politian the formula to turn lead to gold and you trust them not to do it 'too much'? will they not just enrich themselves eventually too?
2. Money/credit is earned as well as borrowed. Most interest is repaid via human labour and endeavour. The debt based inflation you refer to comes mainly from the fractional reserve fraud system, more than the interest on debt (ie the credit money/debt that's created is more than the interest). Any fractional reserve or paper system is prone to inflation and collapse.
I agree 'money kept within the boundaries of sustainable resources is a win for everyone' (except politians and bankers). The big question is how do you do that though? There is really in the end only one real answer to this question.
Not that I am a fan to quote John Maynard Keynes but;
"Lenin is said to have declared that the best way to destroy the Capitalistic System was to debauch the currency.... Lenin was certainly right. There is no subtler, no surer, means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of ecomonic law on the side of destruction, and does it in a manner which not one man in a million can diagnose." In other word its theft by deception...

1. Wider public education in the fundamentals of money will be the best way to ensure we never have a system that trusts either politians or bankers for many many generations to come. You don't think that in the end the political powers that oversee such issuance authority will not conspire with smoke and mirrors to their mutual interest then? Like the US Congress and the FED do, as most of the US congress resists a full audit of the FED? - why would this be so I wonder? Maybe full transparency isn't in either of their interests? Who would sit on such an authority? How would they be appointed? I can't remeber who said that if people understood their monetary system their would be a revolution by morning... but as I've quoted previously on this sight - In the words of George Bernard Shaw -
"You have to choose between trusting to the stability of gold and the natural stability of the honesty and intelligence of the members of the government/bankers/issuing authority. And, with due respect for these gentlemen, I advise you, as long as the capitalistic system lasts, to vote for gold."
2. When the interest is paid to the bank it becomes principal in the bank's hand and so on and so on. If you are referring just to coins and actual cash - that is not how most money exists in a fractional reserve system. Yes every cent is loaned into existence initially. Interest on the debt can be repaid by human endevour - or put it another way interest extracts human productivity for the beneifit of the banking system. Principal + interest = principal + new principal on the bank side. I could type out an example but its too late - nearly bedtime, I do follow what you are referring to here (it's a common point, often made) but think its not fully correct.
About BH - good question. I have wondered the same myself.

#1 "money printing is unlikely to create inflation as long as economies have spare capacity. "
Exactly, this is what i have said many times in the past.
Spare capacity is to do with supply and money printing is to do with demand.

and if consumerism is 70% of the economy and is shrinking that means the spare capacity gets bigger on two counts....new capacity built and existing capacity no longer utilused...
hence deflation.
regards

I'm amazed. Increasing the money supply is inflation, it is diluting the value of money. In the same way as adding water to a pot of soup dilutes the soup. The CPI is not the sum of inflation, and it is not a useful tool outside of propaganda. The CPI was fine during the US housing bubble, and was fine during the housing crash. Yet housing saw high inflation right up to the pop, then saw high deflation. In NZ CCPI is fine, yet power is showing high inflation, same with Auckland housing, or rates. Why? Because the money supply is expanding at over 6% pa, there are more dollars chasing the same services.

No it isnt....to carry the soup analogy further you are ignoring evapouration from boiling....the thing is to appreciate the NET effect of all the inputs and outputs. You persist in only considering 1 and hence why we see no inflation for 3 ~ 4 years despite the QEing....despite the screaming of the inflationistas....
So printing is adding water, OK but the boil off is bigger, hence no dilution....Im amazed, cant you understand even a simple analogy as this? of course the reality is the banks are not lending so the water isnt making it to the soup in the quantity needed anyway....a double whammy.
The boil off is ppl NOT spending.....so they NET effect on the economy is deflationary....
Hence why when you say increasing the money supply is inflationary, it isnt....we are in a liquidity trap, but oh wait that's keynesian economics....which of course I suspect you know zero about and dont want to....because that predicts deflation and they only way out is adequate stimulus....
Power, my power bill is apparantly fixed for 2 years, so no....even if it was not....If I only have $100 and my power bill goes from $50 to $60 I have $10 less to spend elsewhere, so if that elsewhere is areas like retail and rent, well they have to drop their prices....as I have to spend less or move.
You stike me as someone desperate to justify to themselves their financial commitments based on inflation that isnt happening.....which I find strange, I mean if you were that self-convinced why not talk ppl down to buy cheaper and make even more?
Very strange.
regards

Feel free to make many more ridiculous assumptions. You stike me as someone desperate to justify to themselves their financial commitments. Sure like you have a clue about my financial commitments.
I think you're looking in the mirror. I have no need to justify anything, I have a good chuckle though. Even CPI is saying >2% inflation, yet you insist this is deflation, awesome! The continued long winded posts about deflation, sounds like you've been banging on about it for the last 15 years. Hows that going? Been right yet? Good old King cash been ascending in purchasing power? Gonna by heaps of houses once they drop back down to where they were 15 years ago? I was kinda feeling sorry for you. Anyway let me know when your money is buying more stuff, I'll be happy for you. inflation that isnt happening LAWL righto, no inflation only deflation, hilarious.

There is inflation, there may be deflation but it wont last, and it will certainly be resolved by more "printing". We have hit the handle of the hockey stick.

The "Amazing" post above was just a troll. As a response to a recent spate of posts that that were getting a bit personel, and I was tired of ignoring. As you can see I caught a big one.

Depends on how you define inflation, first let me understand your definition of inflation. Then we can see what effects, changes to the money supply has. I can find many different definitions of inflation, and the worst is the CPI IMO. Some definitions are better described as causes, other are effects. I choose to view inflation by looking at the effects on saving vs borrowing, combined with a description of money. I describe money as a proxy for time energy and effort = labour. Inflation decreases the current value of money over time, and makes borrowing more valuable then saving. Labour done, is more valuable then future potential labour. So money today should always be more valuable then money in the future, which is how people view deflation, which to my mind is a much better way. Because labour done in the past, represnts a reduction in future labour, simple eg. if I mowed the lawn today there would be less grass to mow next week. Creating money out of thin air reduces the value of past labour, because it does not represent past labour. Therefore increasing the money supply is inflationary. Thus savers are harmed, and borrowers recieve the benefit of past labour, in exchange for a promise to labour in the future.Without inflation, savers retain the value of past labour. Therefore it becomes sensible to labour today, and store the labour in money. This rewards savers, and makes borrowing a risky proposition.
In a situation without inflation, you would not have debt. Instead you would have savings.

All that being said, the system is based on the assumption that there is potential labour to be done. With technology forcing more and more people out of work, the amount of labourers required is decreasing. Without the requirement for labour, how can people save?Monetary economics all have the flawed assumption that there will always be labour for everyone to do. Which was true in the past, but is becomming increasingly less possible now, and will not be true in the future. I see no bright future in monetary based societies.

#1 MMT sounds alot like Social Credit to me.
@kate, the chance Kitchen Studio would finish your kitchen, or refund your deposit, about as much as Signature Homes finishing your house, or refunding your deposit, after Cunningham Builders went into receivership. I think the phrase receivers use is 'unsecured creditor'.
#3 Maybe Greek deal headlines just keep the robots traders happy?
Jim Sinclair interveiwing Ellis Martin on a non-decleared bank default of major us banks due CDS not being triggered in Greece, It's a little old, Jan 30, but still relevant.http://www.jsmineset.com/2012/01/30/the-impending-undeclared-default-of-...

MMT and social credit are similar, but there are differences. There are two sources of new money in the economy, government deficit spending and loans from commercial banks. You can understand the commercial bank part has to be true because when somebody borrows money from a commercial bank nobody goes without their spending power in return, so new spending power has to have been created (the banking rules also reflect this). The increased spending power is called credit.
MMT argues that you should balance the leverage and de-leverage with government deficits (or surplus) to offset the credit cycle. This means that the Labour government should probably have aggressively hiked taxes to balance the property bubble. There is kind of an issue here of course, governments don't like to raise taxes at the best of times, but if this is true then thank goodness Michael Cullen drip fed tax cuts into the economy and paid down government government debt.
So at the present when everybody is repaying credit and de-leveraging MMT argues you should balance this by running a government deficit.
I have an issue with carrying on in this way however, because
1) you are eventually going to get another boom and bust cycle from the commercial bank money (maybe bust and boom would be a better wording in 2012).
2) in practise its extremely difficult for the government to respond to the actions of the commercial banking sector and compensate for them.
In my opinion the 100% reserve banking system would be better, because in this case the implementation of monetary policy is simplified as all new spending power comes from the government. Banks are left to focus on the important task of allocating existing spending power in the most profitable areas. Some forms of social credit are like this, some more advocate a public owned banking system.

Do you seriously believe that banks should not enforce foreclosure clauses when Joe misses his mortgage payments? Because that would be a sure fire way for them to lose all their deposit holders money and that would be pretty damn neglegent.
B.T.W, the bank doesn't really care if you make payments on a 500,000K mortgage which is held against a 250,000K market value property. If you have any expectation that moral pressure on lenders can right the economy you are deeply mistaken.

Inflation targeting, it seems, has a history of fostering asset bubbles because the notion that a stable CPI equates to a robust economy contains numerous false premises.
The first is that inflation is measurable. Einstein once had the words “not everything which can be measured counts, and not everything which counts can be measured” on the desk in his office at Princeton. And although the world might be simpler if it wasn't so, I believe "inflation" happens to be one of the things which counts but can't be measured. The fact is that once money is created you don't know where it ends up. Maybe it will end up in the consumer goods market, maybe it won't. Or maybe it will be multiplied via the financial system into new credit which will inflate asset prices instead. Even then, we don't know which assets.http://www.zerohedge.com/news/failure-inflation-targeting-hubris-central-planning-lost-pilot-effect-and-economist-idiocy

Ports of Auckland on strike again - time to bring the army in .Smash the union and their intimidatory tactics running of to Oz for support etc ,NZ businesses cant afford this nonsense to carry on any longer.
e.g quote from PoA "
· Non-Union Staff: I want to thank staff on Individual Employment Agreements (IEAs) and other non-Union staff who have helped us keep operations going in recent months. We now have a significant number of courageous staff who have been keeping Port operations going through a difficult period. I meet with this team on a regular basis and understand the challenges they’re going through. I’ve been very concerned about several issues with intimidatory behaviour that have arisen since December, and have made my concerns clear in correspondence with the Union. We have zero tolerance for this sort of behaviour.

Two interesting articles on Zero Hedge this morning
The first from Mike Kreiger who writes about his take on the game being played out in Europe. Its the old " problem, reaction, solution game being played for all the marbles."
First, you get the problem “spiking interest rates for the peripheral countries.”
Then the “reaction,” financial panic and fear.
Finally the “solution.” The placement of unelected technocrats as the leaders of Greece and Italy with ties to all the power structure’s institution such as the Trilateral Commission, the Bilderberg group and of course Goldman Sachs.
He thinks if they can get Europe safely consolidated then they will move to the US. That is when interest rates in the U.S. will spike (problem), and we get panic (reaction) and then the solution (bankster technocratic committees in charge and the IMF to the rescue, ie loss of sovereignty). This is the plan and I see it as clear as day.
And the next article on Greece losing its gold.
"While hardly discussed broadly in the mainstream media, the top news of the past 24 hours without doubt is that in addition to losing its fiscal sovereignty, and numerous other things, the Greek population is about to lose its gold in a perfectly legitimate fashion, following amendments to the country's constitution by unelected banker technocrats, who will make it legal for Greek creditors - read insolvent European banks - to plunder the Greek gold which at last check amounts to 111.6 tonnes according to the WGC. And so we come full circle to what the ultimate goal of banker intervention in the European periphery is - nothing short of full gold confiscation."
Always look at the big picture I say. Our Govt is moving us towards greater enslavement
to debt so that we too can be "rescued". Selling our assets for $6 billion which is only 6 months of current borrowing.!

Re #4 Why the slur against Al Jazeera - "of all places"? They strike me as a credible and competent news organisation, certainly far better than anything coming out of the US, and on a par with the BBC. Far better coverage of the Middle East and North Africa obviously, but also very good for the rest of the world as well. Oh and a complete absence of fluffy bunny 'human interest' stories.

I agree, I've read some very well-thought out and researched pieces from them. Compare that to the fluff that our media serves to us on a daily basis.
In fact, I'd be downright shocked to see an article like published by NZ media. How dare anyone challenge the current status quo and try to get people thinking about where we may be heading in the future!

That critique is incorrect. I think it highlights at least some confusion between two schools about money. The author highlights this idea, 'you can't save without the government' as a big error, but its highlighting a true statement in this model. I don't think the MMT model is an excellent one (because it obfuscates some realities about the economy) but this critique is simply not correct.
So there is this formula G - T = S - I which is taken to mean you can't save without the government. But thats actually true (especially in this model) if your savings are in the form of money. Especially in the MMT model, but also in other schools you can't have money without having a government. Also under almost every model of economies, nobody but a central bank can create additional spending power (this is incorrect, as all banks can create additional spending power). Of course the implication of this G-T statement is that the central bank should create the spending power and the government should spend it into the economy.
In the counter example, this guy Crusoe saves in the form of some coconuts (which presumably preserve their nutrition) but how would he save if there is nothing like coconuts available? Say all the food on the island spoils over night. Well in that case he can't save because he doesn't have a medium for saving. So if savings are in the form of money you need new spending power to be created, and if the only way new spending power is created is in the form of deficits then no, you can't save in monetary form without a deficit.
I would also note something about the argument for discarding the surplus/deficit, its a terrible argument. You can't discard an external trade deficit or surplus as netting out when the formula is being used to critique the lack of government deficits to deal with a depression. The simple reason is you need to consider how you got into a depression and most of the worst effected economies were running big trade deficits before the financial crisis hit. You could not possibly assume that this is not relevant, because it is. Its also dealing in mathematics, and there is no argument that X-M equals zero for this economy at this time, so you can't remove it.
That is a poor critique of MMT.

The so called von mises followers are simply liberatrians who have tried to find any semi-mainstream economics model/name that matches their political outlook...
I sometimes wonder if von mises would fully support what they say, or say that he did, or would he be turning in his grave....maybe spiing would be more apt.
;]
regards

I actually think its poor form to pigeon hole other peoples arguments and then to argue against a straw man position. The author was very careful not to do this, and I respect that.
However its a pity that the author of that does not allow comments. Maybe some of the mistaken ideas in his argument would already be in the comments there. There are problems with the equilibrium model that is used here by MMT anyway and any actual models that von Mises made, so they both have fairly fundamental limitations. For example over what time frame does the G - T go into effect? Does it even work that way in practise? I don't think MMT can be used effectively in practise because the model is too simplistic for the government to effectively use it to set policy correctly.
I would say the von Mises models are similarly problematic because they don't address money, they address the barter economy. This means any money effects (which is mostly what government policy is about) can't be attached. For example the author is right to point out that not all savings are monetary, and coconuts are a valid form of savings. But if you go down that route to far you are on poor ground even discussing if there is a global recession going on because none of the variables of the model (like savings, or GDP) reflect monetary measures.
I actually think the government would behave better if they ignored macroeconomics completely and used democratic principals for policy instead. Even if the population were influenced by this pseudo-science.